Question: We insure a business auto policy with symbols 7, 8 and 9 for property damage. Our insured is a trash disposal company. The claimant alleges that he left climbing gear on the curb on trash day and our insured picked up the climbing gear and disposed of it in the trash truck. As alleged, would there be coverage for this loss under the Business Auto Policy? Thank you.

— Indiana Subscriber

Answer: The ISO business auto policy states: “we will pay all sums an 'insured' legally must pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies, caused by an 'accident' and resulting from the ownership, maintenance or use of a covered 'auto.'”

I am assuming that the garbage truck is mentioned on the Declarations page. First, this damage would be considered “property damage,” because the claimant suffered from a loss of use of his tangible property.

Next, the trash disposal company picked up the property accidentally, assuming it was garbage, and not knowing that it was valuable personal property. This constitutes an accident.

Unfortunately for the claimant, this is where the coverage analysis stops agreeing with him. The property damage has to result from the use of the covered auto. The garbage collectors were doing their job, taking trash off of the curb and disposing of it in the garbage truck. Had the claimant not put the property out on the curb, the collectors would not have put it in the truck. But for the claimant's putting the items by the trash, there would have been no damage to the property.

It is unreasonable to expect the trash collectors to know that something set out on trash day by the trash is not trash; the claimant bears responsibility here. In many states, once property has been set on the curb, it belongs to no one and may be taken by any passerby with no recourse from the person who set it out.

In addition, there is an exclusion for Handling of Property that excludes property damage resulting from the handling of property before it is accepted by the insured for movement into or onto the covered auto, which would exclude any damage that was done to the item when the insured was putting it in the garbage truck.

Some states classify items that are placed on the curb as state property, criminalizing the act of taking items off of the curb as stealing from the state or county. Taking items off of a curb can result in large fines, jail time, or, if a vehicle is involved, the impounding of the vehicle. Taking everything into consideration, it seems clear that this loss is not a covered loss under the garbage truck drivers business auto policy.

Which policy applies?

Question: If the mechanized arm from a garbage truck causes bodily injury or property damage, does this fall under the auto coverage or the general liability coverage?

— Ohio Subscriber

Answer: The claim would be handled under the business auto policy.

The bodily injury or property damage resulted from the use and ownership of the covered auto. The only exclusions that might apply pertain to the movement of property by a mechanical device or the operation of equipment listed in the mobile equipment definition in the business auto policy.

The movement of property be mechanical device exclusion is not applicable because the exclusion states that the exclusion does not apply if the device is attached to the covered auto; presumably, this is the case in your scenario.

The operation of equipment listed in the mobile equipment definition refers to things like cherry pickers and air compressors and pumps. The mechanized arm on a garbage truck does not fit into this category.

So, the bodily injury or property damage claim would be handled by the business auto policy.

Covering a costly mistake

Question: Our insured accidentally threw away some digital X-ray sensors in the trash. Now, they want to be compensated for them. The businessowners policy, (in which) Section I Property, Coverage agreement states: “We will pay for direct physical loss…”

I believe the coverage agreement precludes coverage as this is not “direct physical loss.” Nothing happened to (the X-ray senors); they were simply thrown away. Do you believe coverage exists?

— Oregon Subscriber

Answer: There is no exclusion that applies to this loss. There does not need to be any impact on or damage to the items themselves for there to be a direct physical loss, just like when items are stolen. But, there is a loss in that they are no longer available for the insureds use.

Big city garbage problems

Question: Tenants in a neighboring building, instead of disposing of their garbage properly, started throwing it from their taller building onto the roof of the insureds building.

Of course the insured did not know that this was going on, and eventually when there was a heavy rain, water could not go down the roof drain as the drain was blocked by all of the garbage. Water leaked into the building causing interior building damage.

The claim was reported as vandalism and malicious mischief since tenants of the other building were intentionally throwing their garbage on the insured's roof, but the insurance company has denied the claim, stating that this was not a case of vandalism.

— New York Subscriber

Answer: We agree that this would not be considered vandalism. Commercial property coverage forms (ISO forms) state that vandalism means, “willful and malicious damage, or destruction of, the described property.” While the inconsiderate neighbors in the next building did intentionally throw their trash on the insured's building, it does not sound like they were maliciously intending to destroy or damage the insured's property.

Lost bling and the 'pair or set' clause

Question: Our insured threw away an old bathrobe, not realizing her diamond earrings were in the pocket. By the time she discovered they were gone, the trash had been collected and there was no way to recover them. She is insured on a policy that provides, “$5,000 for loss by theft, misplacing or losing of jewelry, watches, furs, precious, and semi-precious stones, but not to exceed $25,000 for any one article.” The earrings were not scheduled but were appraised at over $5,000.

But when we turned in the claim, the adjuster insisted that a pair is one article, and therefore will only pay $2,500 for the loss of two earrings. The “pair and set” clause reads that the insurer, “may elect to a) repair or replace any part to restore the pair or set to its value before the loss; or b) pay the difference between actual cash value of the property before and after the loss.”

We think the total of $5,000 should be paid, but the adjuster seems adamant. What is your opinion?

— Oregon Subscriber

Answer: We agree with your interpretation. Not only is the adjuster overlooking the meaning of pair, which, according to Webster's Collegiate Dictionary (Tenth Edition) is, “two corresponding things designed for use together,” but also the “pair and set” clause. If two items were one article, the clause could simply state “set clause.”

Had the insured lost only one earring, would the adjuster, based on his or her interpretation, proceed to reimburse the insured for the loss of half of an earring? Obviously, this makes no sense; the logical interpretation is to treat each earring as one article, and pay the entire loss subject, of course, to any deductible.

Analysis brought to you by the experts at FC&S Online, the unquestioned authority on insurance coverage interpretation and analysis for the P&C industry. To find out more — or to have YOUR coverage question answered — visit www.nationalunderwriter.com/FCS.

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